Europe learned the big lesson from the global financial crisis in 2008 that the major banks here must be centrally supervised. And in the event that they do gamble, the institutions should write a “will” in which they explain how the authorities can then handle them quietly and without prosecuting the taxpayer. The chairwoman of the ECB Banking Supervision, Claudia Buch, and the head of the European Banking Resolution Authority SRB, Dominique Laboureix, were on stage together in Brussels on Tuesday to open the next chapter. “The international banking sector faces new risks,” Laboreix said, pointing to cybercriminals attacking banking systems and social media through which rumors and targeted misinformation about the state of banks spread quickly. “Banks need to take these reputational risks even more seriously and tell the truth at the right moment,” said Laboureix, who has led the SRB since last year.
Claudia Buch has been in charge of ECB banking supervision since the beginning of the year. She gave her first major speech in this role on Monday evening in Brussels, followed by the panel discussion on Tuesday. “There is a lot of uncertainty. We don’t know which event can lead to a banking crisis and with what probability. That’s why we work with scenarios,” said Buch, referring to what has been achieved. “It’s easy to forget what it was like in 2008, when there was no common supervision, no resolution tools, and when the state had to save banks with citizens’ money.”
The fact that taxpayers had to bail out bankers caused great social anger in Europe in 2008/2009. Once again it has been shown that banks pocket their profits and socialize their losses as soon as the amounts are large enough to destabilize the entire financial system.
That’s why the EU decided at the time: A common European supervisory and resolution regime should make the financial system more stable, especially by standardizing the rules. The banking union was born based on the experience of the financial crisis, which was triggered by bad bank loans and the bankruptcy of the US investment bank Lehman Brothers. This shouldn’t happen again. Capital rules have been tightened over the past 16 years. The banks now have to set aside significantly more money as a loss buffer.
Although monitoring credit risks is still part of the core business of supervisory authorities, new dangers are emerging. Keyword: geopolitical risks. “The bankruptcy of the Russian Sberbank happened due to the sanctions policy against Russia. This could not have been predicted, but the resolution worked well,” said Laboureix, who presented a new strategy for the SRB on Tuesday. “We will now review the banks’ resolution plans every year. The banks, as strange as it sounds, have to prepare for their death. And we as an institution must also be prepared to quietly wind down the banks in an emergency,” said the head of the European Banking Resolution Authority . “I want to reassure the public that we are doing everything we can to maintain financial stability without burdening taxpayers,” Laboureix said. The SRB and the ECB would intensify their cooperation.
In her speech on Monday evening, ECB banking supervisory chief Buch warned the banking sector of economic, climate and geopolitical risks. Interest rates and energy prices have already risen, growth forecasts have been lowered, climate-related risks are becoming increasingly visible and the number of cyber attacks has increased. She also referred to the increasing digitalization of the banking sector. This could result in deposits being withdrawn from accounts much more quickly than before when banks come under pressure.
She referred to the regional banking crisis in the USA. In the spring of 2023, some US regional banks recorded cash outflows worth billions within hours. The bank run accelerated through social media, where distrust of the banks was stoked. The Silicon Valley Bank and several other US financial institutions collapsed as a result. These new risks are currently not sufficiently taken into account in the risk management processes of financial institutions, said Buch. “Banks’ decisions could therefore be based on incorrect or incomplete information.”